Audit Finds State’s Lousy Transportation Oversight Is a Threat to Consumer Safety

Wednesday, June 18, 2014

Just as state lawmakers begin to take up legislation that would further regulate the burgeoning ride-sharing industry led by Uber and Lyft, the California State Auditor has released a report (pdf) that the California Public Utilities Commission's (CPUC) has done a crummy job so far overseeing it and other transportation activities.

The report found that the commission's Transportation Enforcement Branch takes way too long to begin an investigation of complaints from the public (if it begins one at all) and then takes way too long to finish them. The commission rarely hands out penalties and when it does they are too weak. Once it hands out a penalty, it is slow to collect the fine, if it does at all.

The result is the CPUC “does not provide sufficient oversight of charter–party carriers and passenger stage corporations (passenger carriers) to ensure consumer safety.”

The auditor faulted the commission's leadership, noted high turnover in key management positions and questioned how personnel is used. The report pointed out that five additional investigators authorized by the Legislature for airport enforcement were assigned to other jobs.

The CPUC does not regulate taxicabs, but does oversee other transportation like limousine operators, shuttles, charter buses and Transportation Network Companies (TNCs). The war between the taxicab industry and its new competitors—ride-sharing companies that rely on smartphones and armies of drivers operating their own vehicles (the TNCs)—is being played out in part in airports where taxis and other transportation are tightly regulated.

The report was ordered after a limousine fire on the San Mateo-Hayward Bridge in the Bay Area last May killed five nurses trapped inside. An investigation questioned whether the state had properly exercised its oversight, but the auditor pointed out that the California Highway Patrol (CHP), not the CPUC, has responsibility for conducting annual safety inspections.

But, the auditor wrote, “A new state law and a new initiative from the commission to have the branch regulate transportation network companies will place additional responsibilities on a program that is not currently well managed.”

Ride-sharing companies, which claim to simply be app developers, not transportation services, have built their innovative and lucrative business model on avoiding taxes and overhead while skirting laws governing the taxi industry and businesses in general. It has worked so far. Venture capitalists have invested enough money in Uber to raise its valuation to $17 billion, twice that of Hertz and Avis combined.

Uber's blog describes its business as a “vibrant new ridesharing ecosystem.” Los Angeles City Councilman Paul Koretz calls them “bandit cabs with an app.”

Specifically, the auditor found the commission took an average of 46 days to start an investigation and 238 days to complete it. CPUC investigators failed to conduct a site visit or used flawed investigative techniques in 17 of the 40 instances reviewed by the auditor and took an average of five months to hand out the 13 citations it eventually deemed appropriate.

The commission agreed with all of the auditor's findings and promised to implement recommendations to improve. It is safe to say that Uber and the ride-sharing industry do not concur.

Their effort to establish markets worldwide for the innovative transportation model has sparked resistance at local and state levels in the U.S., in courts, legislatures and regulatory bodies. California lawmakers are considering two bills the ride-sharing companies oppose that would constrain their behavior and cut into some of their more lucrative practices.  

Assembly Bill 612 would require drivers for TNCs to acquire permits, submit to criminal background checks, undergo fingerprinting and take drug tests just like their more established transportation competition.

Assembly Bill 2293 would compel the companies to acquire commercial liability insurance that would supersede private insurance held by drivers.

California was one of the first states to come up with a regulatory framework last year, but it was hurried and cobbled together as the industry expanded at light speed and local jurisdictions struggled to come up with their own solutions. Big money is lining up on both sides of the issue, including trial lawyers, insurance companies and investors, and the outcome is by no means certain.

–Ken Broder


To Learn More:

Audit Hits Public Utilities Commission's Transportation Arm on Fines, Passenger Safety (by Jeremy B. White, Sacramento Bee)

Audit Slams Regulators after Deadly Limo Fire (by Henry K. Lee, San Francisco Chronicle)

Uber Urges Users and Hollywood Supporters to Stop 2 Calif. Senate Bills Stymying "Innovation" (by Greg Gilman, The Wrap)

California Debates Regulation of Uber, Rideshare Companies (by Mark Berniker and Josh Lipton, CNBC)

Ride-Sharing Companies Defy CPUC, Continue to Service Airports without Permits (by Ken Broder, AllGov California)

Audit of California Public Utilities Commission (California State Auditor) (pdf)

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